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We often ask tough questions! It may have been true many years ago that the auditor-management relationship dominated but today the three way relationship between audit committee, auditor and management means that it's much easier for the auditor to be challenging and robust. But the adversarial aspect of the relationships tends not to deliver effective audits unless used sparingly, as a fall back. Governance reforms mean that audit committees increasingly expect auditors to have open, constructive management relationships. Boards are keener than ever to get auditors' frank assessments of companies' management, business, accounting quality and future prospects.

If audits were not required, would we have them anyway? Do they create real value?

Absolutely. For example, in countries where audit is not mandatory audits are still often bought. Ask any audit committee chair and they will tell you how audit adds value for shareholders. But the way auditors report to shareholders has not evolved and this means that a huge amount of the value that auditors bring – such as forcing through changes to the financial statements, highlighting improvements that need to be made in internal controls and risk management and keeping companies up to date with developing best practices – is unseen by shareholders.

In that case, how can the profession enhance the value of the audit?

The first goal should be to improve the visibility of the insight that we gain during the audit and the recent changes to audit reporting being pioneered is kick starting this. That will help shareholders to tell us what else they would find valuable, and for us to respond. We are beginning to see some healthy differences between the approaches being taken by the audit firms. In the longer term we need to be much more willing to innovate, for example by auditing important non-financial statement data.

So how much of this is about investor perceptions and the demands of capital markets?

We keep hearing investors saying that they want more from the audit and think that they can get more from the audit. But without a deeper informed dialogue it is hard to know what "more" really is. So yes perception may be part of it, but it's all about dialogue to understand demand and find a way forward.

How about public perceptions and the needs of the wider community?

The public at large have a strong interest in the health of the corporate sector, and public companies' annual reports provide information to a wide range of users. There is a huge common interest there between shareholders and other users. Auditors should acknowledge this more openly in our work, even if we do not have legal liability to all stakeholders. Again, I think that dialogue is critical, including with investors – as shareholders ultimately foot the bill. If auditors are clearer about the work we do, stakeholders will be able to clarify what they want and we will be able to respond.

What about audit opinions and public reports? Should they move beyond the current pass/fail format?

Reforms to audit reporting are already being made by the IAASB and the PCAOB and other national bodies focused on improving readers' understanding of the focus of the audit and the work undertaken. These are very welcome, but we need to go further. I believe that to really demonstrate value, as well as disclosing the risks we identify and the work we do on those risks, we need to say what we find during the audit. Of course this is challenging in a number of ways. KPMG in the UK is trialling this more ambitious approach with a handful of clients. We are providing investors with information about the strengths and weaknesses of controls, and the degree of caution or optimism of estimates included in the financial statements. We can't be sure if investors will welcome this, but we believe it is worth trying – the initial responses have been very positive. It is essential that the profession leads the debate, rather than the other way around.

Do you have any final thoughts?

In the past, the profession has not engaged as well as it should have with stakeholders, by which I mean shareholders as well as management and boards, and other financial statement users. It is up to us to get the ball rolling. We need to talk to stakeholders, experiment with more informative reports and widen the data that we audit. It would be naïve, if not dangerous, to take a passive approach to the future.

Jimmy is the Global Head of Audit for Energy and Natural Resources and KPMG’s Head of Oil and Gas for the EMA and ASPAC region. Since joining KPMG 30 years ago, Jimmy has lived and worked in many parts of the world including the US, UK, Netherlands, Australia, Nigeria, sub-Saharan Africa and Latin America. Jimmy is a member of the UK Oil Industry Accounting Committee and the UK Financial Reporting Review Panel and has represented KPMG on a number of international committee’s including the UN ECE’s Ad Hoc Group of Experts on Harmonization of Fossil Energy and Mineral Resources Terminology.